If I want to have a banner ad along the site of my page, can I do this? I know adsense is not allowed but can I have a banner advertisement linking to another website?
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Adsense and other ads: http://faq.wordpress.com/2005/12/08/adsense/
Business blogs: http://faq.wordpress.com/2008/01/22/business-blogs/
From the current terms of service #2, 5th bullet point (highlighted in blue):
the Content is not spam, and does not contain unethical or unwanted commercial content designed to drive traffic to third party sites or boost the search engine rankings of third party sites, or to further unlawful acts (such as phishing) or mislead recipients as to the source of the material (such as spoofing);
In general, as in, virtually always, staff rules that paid advertisements are against the ToS and will put your blog up for deletion. Don't risk it. They do sometimes make exceptions for artists advertising their own work, etc, but not paid advertising. You would need to leave WordPress.com to run ads.
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